Financial Statements and Decision Making

[Name of the Institute]Financial Statements and Decision Making

Introduction

This paper discussed about how the financial statement helps in the decision making for a manager. There are basically three financial statements, the balance sheet, cash flow and the income statement. In the paper the financial statement that will be used is the balance sheet in order to determine how the financial statements will help a manager to take the decision.

Discussion

The balance sheet which is also called as the statement of the financial performance is used to compare the results that are being achieved by the other organizations and also to identify the areas of the improvement. The information provided by the balance sheet and other financial statements will provide a manager, invaluable statistics and also the evidence in order to provide invaluable statistics and also can make (Baranoff , 2008)the informed decision making and plans.

The balance sheet will help a manager to perform the financial analysis and take the decision on the basis of the performed analysis. The following ratios can be carried out using the balance sheet or the statements of the financial position.

Financial Ratios

Current Ratio

Current ratio is the liquidity ratio which is determined by using the following formula

Current Ratio = Current Assets / Current Liabilities

Current ratio is the ratio between the current assets and the current liabilities of an organization. It determines the capability of the company to pay off its short term commitments or the compulsions.

Quick Ratio

The quick ratio is also called as the acid test ratio is a liquidity ratio which is determined by the following formula.

Quick Ratio = (Current Assets - Inventories) / Current Liabilities

If the current ratio of an organization is higher than company or an organization can meet its current obligations by using the liquid assets. Therefore the quick ratio should be ...